W Financial takes over Upper East Side site from HFZ

The nation’s banking crisis could create an opportunity at an Upper East Side development site.

W Financial snapped up the assemblage, at the corner of 79th Street and Lexington Avenue, through a foreclosure sale in February after developer HFZ defaulted on a $43.6 million loan. 

Standing in the way, however, is a First Republic Bank branch. But First Republic’s financial problems might offer a chance to make its lease go away.

No one is making any promises, though.

“Until First Republic agrees to be bought out, I think there is a stalemate,” said Robin Schneiderman of Brown Harris Stevens Development Marketing.

There is also a Don Filippo restaurant at 1133 Lexington Avenue. The Real Deal could not determine status of its lease.

If those obstacles can be overcome, the parcel offers 71,500 buildable square feet at 150, 152 and 154 East 79th Street, and 1131 and 1135 Lexington Avenue.

W Financial, a bridge lender with offices in Great Neck, received offers north of $60 million for the assemblage, according to Schneiderman, but First Republic’s lease was flagged during due diligence.

Now that First Republic needs to bolster its balance sheet, however, it may be more amenable to a deal. W Financial and First Republic did not respond to requests for comment.

First Republic began leasing 1135 Lexington Avenue in 2006, records show, with an option to renew every five years. Since then, it has steadily grown by offering loans to top-tier borrowers at attractive interest rates.

Loan originations soared at the bank in 2021 and early 2022, when rates were at all-time lows. In March, following several rounds of interest rate hikes by the Federal Reserve, the bank advertised a 4.95 percent interest rate on CDs of $10,000 or more, meaning it could be paying higher rates than it is charging for previously issued loans.

“First Republic may be looking for ways to mitigate its risk,” said Eric Brody, founder of real estate development firm Anax Real Estate Partners.

W Financial’s Upper East Side assemblage is potentially lucrative if developed.

“Upper East Side condos sold very well even during the pandemic,” said Brody, who recently developed condos in East Harlem and rentals in Greenpoint. However, the $610 per buildable square foot that W Financial paid for the site verges on being cost-prohibitive for development, he added.

“It depends on what the terms of their capital are,” said Brody. “There must be a rate burning on what they put down.”

Schneiderman noted that an affordable housing bonus at the site could drive the land price down to around $550 per buildable square foot.

“That’s doable,” he said, “if the land were delivered free and clear.”

A little more than a year into the pandemic, Phil “Filippo” Arcara — proprietor of Don Filippo — appeared to be playing ball with storied New York developer Harry Macklowe, according to public records, and ready to sell the Upper East Side pizza shop that had operated there for 39 years. Arcara signed a memorandum of contract in June 2021, but by January of this year, the deal with Macklowe Properties was off and the memo was terminated. Arcara was not immediately reachable for comment.

This article has been updated with more information about Don Filippo restaurant.